Success Tips

Want To Get Better At Financial Risk Management? Nine Tips For Success – Forbes

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An entrepreneur doesn’t start a business already knowing everything there is to know about operating it. From planning to execution, and even beyond that, first times entail a steep learning curve.

One common lesson many business owners have to learn is financial risk management. Understanding and anticipating possible financial risks is crucial to keeping your business afloat. To help, a panel of Forbes Finance Council members, below, share their top tips for small business owners who want to learn more about financial risk management. Here is what they advise:

Members discuss a few things about financial risk management small businesses should know about.

Photos courtesy of the individual members.

1. Learn To Read Your Statements

A key element of running any business is fully knowing and understanding the numbers and your performance. This comes from your financial statements (profit and loss, balance sheet and cash flow) along with key performance indicators and metrics. Knowing how to read and understand the statements is key to being proactive and making better business decisions, leading to increased profits. – Khurram ChohanTogether CFO

2. Understand How Many Risks You Can Tolerate

Startups are a gamble, so think like a gambler to see how much risk you can tolerate. How much are you willing to lose on one bet or decision? If you’re a methodical bettor then you’re comfortable with small, calculated bets that generate smaller returns. If you like riskier strategies, then bet big or go “all-in,” knowing that one bet or decision could really impact your future for better or worse. – Chris TierneyMoore Colson CPAs and Advisors

3. Focus On ROI

Understand the return on investment. ROI can tell you if your business is running efficiently. Additionally, you are able to use ROI to track the efficiency of your team. Calculate your margin each month and compare the margin to your investment of dollars or time. Track your ROI each month and before long you will be able to see the health of your business. – Justin GoodbreadHeritage Investors

4. Create A 13-Week Cash Flow Forecast

If a business runs out of cash, it runs into problems. There are a few ways to handle cash management: A simple and effective method is using a 13-week cash flow forecast. This is usually long enough to see immediate cash needs and gives you enough time to make adjustments prior to running out of cash. Long-term cash flow forecasts are also effective at seeing problems further down the road. – Brian HayesNOW CFO

5. Don’t Forget About Margin Control And Liability Budgeting

Founders must acknowledge that their business could be susceptible to financial risk. Often times, the founder focuses on standard workflows and top-line sales procurement—which in the early stages, though important, results in overlooking bottom line net capture. Understand the statement of cash flow and liquidity ratio while also focusing on margin control and budgeting for each liability. – Sam SinghCFObase

6. Take A Course And Learn From The Experts

The best way to get informed about financial risk management is to take a course. While it won’t make you a whiz at finances, what it will do is put you in contact with professionals with experience, give you a place to learn and ask questions, and a community to reach out to. If a class is too much, consider getting a book like, “A Practical Guide to Risk Management,” by Thomas S. Coleman. – Greg HerleanHorizon Trust

7. Take Out Insurance Policies

Set up insurance policies for your business and employees. Although it isn’t fun to consider worst-case scenarios, it’s mandatory when setting up a strong risk management system. Health and business insurance policies need to be in place to ensure you are financially protected in the event of an incident. As a first-time business owner, you need to look ahead and be prepared for anything. – Jared WeitzUnited Capital Source Inc.

8. Develop And Update Contingency Plans

It’s a challenge to master risk management, as risk will never be fully eliminated. However, owners can certainly work to mitigate risks by identifying their present and future risks by developing contingency plans and acquiring insurance coverage that will lower risks. Owners will then need to monitor and customize plans as needed. – Geanette Rodriguez-OjedaARRI Rental

9. Hire A Consultant

As a business owner, I’m all about consulting experts on anything that’s not my forte. When it comes to financial risk management, it would be money well spent to hire an independent professional who can show you the ropes and guide you through your startup. Check into the Society of Risk Management Consultants or ask your insurance agent or attorney if they can recommend someone. – Danielle Kunkle RobertsBoomer Benefits

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